An insight into the volatility of UST and LUNA
The past 24 hours have been rough on the Terraform Labs' LUNA and UST cryptocurrencies, where the former lost 50% of its price while the latter lost its peg to the $1 price level. In this article, we will analyze the volatility currently experienced by the users of the stablecoin and the utility token.
UST de-pegs, causing a BTC sell-off?
Terra USD or UST is an algorithmic stablecoin that is decentralized in nature when compared to Tether (USDT), works using the fact that 1 UST could always be swapped for $1 of LUNA. In order to retain UST's peg to the dollar, in case of high demand, LUNA needs to be burned, and vice versa is also true.However, on Monday, Cryptonary saw that the stablecoin's prices dropped as low as $0.65 from $1 and caused a market-wide panic. The price drop can be attributed to an increase in the supply of UST, which caused the stablecoin to lose its peg to the US Dollar. This was the first time that the peg was lost since the LFG or LUNA Foundation Guard bought $10 billion worth of Bitcoin (BTC) and $100 million in Avalanche (AVAX) as well.
The Chief Information Security Officer (CISO) at Polygon, Mudit Gupta, presented blockchain data and confirmed that hundreds of millions worth of UST were sold in mere moments, along with over $2 billion in withdrawals from Anchor Protocol, essentially a bank for UST
"You are free to draw whatever conclusions you want from this data. You are also free to research more. I have formed my own conclusion but do not feel confident/comfortable sharing it," Gupta said. I'm not saying TFL depegged UST or nuked Luna. However, the timing of different things is sus. Today's events seem like a coordinated attack that could have been organized using insider information that got leaked."
What now?
As per a Twitter post from Colin Wu, a crypto reporter, Etherscan shows that Frog Nation's former CFO 0xSifu exchanged about 2.8 million USDT for about 3.88 million UST at 11:40, increasing supply and further damaging the peg. The UST price was around $0.72 at the time, and at the time of writing, its $0.8999.On the other hand, the Bitcoin address of the Luna Foundation Guard (LFG) had transferred 28,205.5 Bitcoins to Binance, and the balance of the address is 0 now. The address transferred 42,530 bitcoins out earlier today and then transferred 28,205 bitcoins in Binance. It seems that LFG continues to sell BTC reserves to maintain the peg but for how long?
There are two choices, either let LUNA collapse or drain the Bitcoin reserves. Either way, this is a monumental moment for Do Kwon, the founder of Terraform Labs, who remained silent, only posting a single tweet seen below.
As per data from CoinMarketCap, UST has a higher market cap for LUNA, another risk for the stablecoin; for how can the promise of swapping 1 UST for $1 LUNA be fulfilled if the latter is more valuable?
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